LED Equipment Spending on Track for a 2014 Rebound

LED
Equipment Spending on Track for a 2014 Rebound

By Tom Morrow, SEMI

The
LED industry is working through its over-capacity problems and will renew
capital spending and capacity increases in 2014. According to the SEMI Opto/LED Fab Forecast quarterly on HB-LED front-end fabs,
2014 LED wafer fab equipment spending will rise 17 percent to nearly $1.2
billion in 2014, following a 30 percent decline this year and 45 percent
decline in 2011. Equipment spending
trends also reveal a new era in the LED industry as equipment spending now is
concentrated among the industry leaders, and aspiring survivors, rather than
widely distributed among new entrants to the industry or new technologies.

Following
the explosion in LED interest sparked by the LED TV boon and exuberant optimism
for the long-term growth in solid state lighting, the LED industry dramatically
expanded worldwide capacity over the past three years, partly fueled by
lucrative government subsidies in China.
Total worldwide capacity rose 49 percent in 2011 and 39 percent in 2012
and continued to grow by 19 percent this year.
Driven by national and provincial subsidy and incentive programs, China
LED manufacturing rose from approximately 100,000 4” equivalent wafers per
month in 2010 to an astounding 620,000
4” wafers per month this year.

Much of this capacity expansion was
driven by extremely optimistic forecasts in 2010 and 2011 that the LED market
would grow to over $20 billion as soon as 2015.
Current market forecasts for the packaged LED market in 2015 hover around
$15 billion with compound annual growth rates below 5 percent. Principle reasons for the decline in growth
forecasts are the greater efficiency (i.e. improved light guides in displays)
in using LEDs, the greater efficacy of packaged LEDs, and the minimum size of a
replacement market for LED lamps. According
to Strategies Unlimited, the average cost per kilo lumen has declined from $13
in 2011 to less $3.65 today. The number
of LEDs used in TVs has declined by one-third and many SSL luminaires require less
than half the LEDs used just a few years ago.
LEDs in mobile devices and notebook computers have also declined. Automotive remains a growth market, but
represents only around 10 percent of the market.

With
so much new capacity, new entrants, and declining growth rates, prices for
packaged LEDs dramatically declined in recent years, creating severe financial
hardship for many, especially new entrants and those restricted to lower margin
mid- and low-power segments. Fab
utilization dropped worldwide, especially in China. Sales for MOCVD systems, the critical
production tool for LED epitaxial operations, plummeted. Leading MOCVD
companies, Veeco and Aixtron, who saw sales triple in 2010, watched revenues
plummet by nearly the same amount in 2012.

Compensating
for some the decline in packaged LED prices are steep declines in sapphire
wafers, used by over 80 percent of the LED industry. Sapphire prices for 4” wafers are now
approximately $32, down from their high of $130 in 2011, and 6” inch sapphire prices
are now below $300, down from $450 eighteen months ago. Patterned sapphire
substrates have rapidly become standard at 2” and 4” and are promising for 6”
wafers. Declining sapphire prices and continued competitiveness of silicon
carbide has dampened prospects for the penetration of GaN on Silicon in LEDs,
once thought likely if not inevitable. A new report, titled “Dimming the Hype:
GaN-on-Si Fails to Outshine Sapphire by 2020,” by Lux
Research sees SiC and
sapphire continuing to dominate the LED market, benefitting from added capacity
and continued technology improvements. The report says that “new methods like
hydride vapor phase epitaxy (HVPE) will further improve throughput and cut
costs, keeping sapphire highly competitive for the rest of the decade.”

The
global LED industry now appears to be stabilizing as leading manufacturers
invest in 6” wafer production systems and associated equipment purchases to
deliver improved yield and throughput. Recent
LED manufacturing investment has centered on the move to 6” wafers by Cree
(Silicon Carbide), Philips and OSRAM (Sapphire). Nichia continues to invest in capacity and
technology improvements, and Epistar, Formosa Epitaxy, and Genesis Photonics from Taiwan
all made significant manufacturing investments this year. Nearly leading manufacturers appear to be
modernizing their production systems with increased in investments in
metrology, automation, etch, and lithography.

China
will resume its MOCVD purchasing in 2014 in the absence of government
subsidies. SEMI estimates a nearly 50 percent increase in MOCVD reactors will
be purchased in 2014, up from 150 reactors purchased in 2013. At the same time, many LED fabs will close or
be repurposed in China as the market consolidates and non-competitive players
disappear. San’an with over 120 MOCVDs and ETi (Elec-Tech) with 90 reactors are operating at increasing fab utilization rates and appear to
be emerging as significant players. Some
medium-size LED fabs in China like Canyang Opto and HC Semitek are also operating
at near full capacity and are optimistic for their future. China will represent approximately 44 percent
of total equipment spending in 2014, up from 33 percent in 2013. More
information will be available at LED Taiwan 2013, which
is co-located with SEMICON
Taiwan, on September 4-6.

In
conclusion, the global LED manufacturing market appears to be stabilizing and
working through its rapid capacity expansion of 2010-2012. Significant packaged LED price declines have
been partially offset by wafer cost reduction, yield improvements and wafer
size increases. Global leaders like
Nichia, Cree, Philips, Osram, and LG Innotek have continued to modernize their
production operations for improved yield and throughput. The shakeout of the China market has begun
and the survivors look to have staying power for long-term competitiveness.

With
the overall LED market appearing to have modest growth rates for the next five
years, and with many manufacturers being vertically integrated lighting
manufacturers, the incentives for significant investments in manufacturing to
gain cost advantage and market share are not high. In addition many mid-power packaged LEDs are
migrating to lighting applications once thought reserved for advanced
high-power products, opening up market opportunities for Chinese companies.
However, many lighting manufacturers are looking to reduce parts count (die
sizes, package and phosphor types) and stabilizing their product lines after
many years of dynamic technology change, limiting the demand for new suppliers
and product-types. It seems the stakes
for success in the LED marketplace have revealed themselves and it remains to
be seen how competition drives further manufacturing investments in the coming
years.

Tom Morrow, VP and CMO of SEMI, will be speaking at the LEDs Conference on October 28-29 in Boston, MA. This year’s conference, entitled, LEDs & the SSL Ecosystem 2013: Phase 2, the Path to Profit, will feature speakers from OSRAM, Philips, Acuity, Cree, Canaccord Genuity, Rensselaer Polytechnic Institute, and many more. A special rate of $750 has been set up for SEMI members, valid until
September 27. To register at this rate, log onto www.ledsconference.com
and click on the ‘Register Now’ button. On the first screen, under
the LEDs conference registration, you will see a listing for SEMI members –
please click the box. To proceed, please enter the code SEMIVIP and hit "enter." This will be
the only time you’ll need to enter this code. Proceed through the
registration process; if you have any questions or issues registering, please
contact Jennifer Carter jcarter@smithers.com or call 207-781-9130.